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Commentary on SAP Q3, ByDesign and mobile

Den Howlett Profile picture for user gonzodaddy October 21, 2013
We spoke with Bill McDermott, co-CEO SAP about the Q3 results. In particular we wanted to understand more about the ByDesign position.

bill mcd
Bill McDermott, co-CEO SAP

SAP's Q3 results are in, missing analysts expectations on the top line but more than compensating by strong cost discipline. However, all is not rosy in the SAP garden, not least with Business ByDesign (BYD.)

Let me preface by saying that contrary to many in the industry, I have always believed that BYD is/was a good offering in the mid-market. It is/was the only cloud solution catering to all major internal departments. However, it was beset with difficulties that arose out of some poor design choices. Many of those problems have been rectified but SAP has had considerable difficulty in understanding the cloud business model. If it has failed at all, it is in that department more than any other. On with the news element.

Handelsblatt chose Saturday to state that BYD development is being scaled back. Using specific figures that could only have come from insiders, it claimed that ByDesign has 785 active customers and annual revenue of around €23 million ($31.4 million.) By the time AllthingsD got around to writing it up, it had become:

German software giant SAP appears close to ending active development of its Business ByDesign suite of applications...

...SAP spokesman Jim Dever said the company’s plan for Business ByDesign is a little more nuanced than the total shutdown of the product, as portrayed by WirtschaftsWoche. He said SAP is essentially concentrating its development efforts on its HANA cloud application platform, of which Business ByDesign will become a part.

This is a very confusing message and one the company needs to clear up quickly before BYD is killed by a death of a thousand cuts. During my earnings call with Bill McDermott, co-CEO SAP I asked the following questions and received the following answers on a range of topics:

Q: There was no/little mention of mobile in the earnings call. Has that line of business run out of gas?

A: We realized that as we talk to customers they see mobile as part of what they need to do so while we have all the good security and other mobile platform capabilities, it is really a technology piece for the whole offering. But you will see an announcement around the mobile platform this week at TechEd.

Q: Where are future HANA sales going to come from given that we hear mixed messages in the field around POCs conversions?

A: HANA is going great and we don't see any slowing up. We signed John Deere as one of the largest deals following a thorough POC. I'm happy that the conversion numbers you've heard before are good.

Q: We hear that the HANA BW on AWS trial is going well. Do you see this as a model for the future?

A: Yes, I am very much in favor of a try before you buy approach and if you think about it, it's very much in line with modern thinking around how solutions will be offered in the future.

Q: Is substantive feature development on BYD over - at least for the time being?

A; This is really about the HANA platform which is going across all our cloud offerings. We didnt get rid of BYD at all, we still offer it and will continue to offer ByDesign.

Q: How long will it take to get BYD replatformed onto HCP?

A: We're ready now...we have the Suite on HANA...BusinessOne is on HANA platform. We are moving everything cloud onto HANA platform.

Q: What is your message to customers, some of which have very large commitments to BYD and who may yet have functional requirements not included in current releases?

A: We're with them 100 percent. All contracts and commitments will be honored.

Q: What about partners who are telling me that they are closing down their BYD units  because in their eyes there is nothing worth continuing to sell?

A: All previous promises are being kept but this is really about going to HANA cloud platform. That's where the future lays.

Q: For those partners who are continuing with BYD, what should they be thinking about regarding extension development? They've worked on SDK so where to now?

A: I totally understand their concerns and it is always hard when a company makes a platform change but as I have said throughout, HANA Cloud Platform is the future environment for everything cloud including ByDesign. Vishal [Sikka, executive board member SAP] will address many of those concerns this week at TechEd.


Despite McDermott's upbeat presentation, the company is wise to keep expectations in line with past guidance especially since the company reckons on 40 percent of revenue coming in the final quarter.

Although I haven't flagged up Ariba specifically, McDermott mentioned that he is looking forward to that business unit continuing to perform well. I was pleased to hear that because Ariba holds serious value potential in the customer base.

The decisions around ByDesign make sense in the context of a unified cloud strategy. However, talking to partners and potential customers, it is clear that future sales will be very hard to come by. Existing customers will need unequivocal assurances that their investments are safe. I have no doubt that SAP will work hard on that, even if it means negative margins on what is a tiny part of the business.

Partners will be harder to satisfy. I am already aware of partners who are resigned to writing off their BYD investment - at least for the time being. We now need to hear Sikka on this topic to get a better understanding from a roadmap perspective.

Longer term, I suspect that SAP will scale back its margin expectations as the cloud transformation takes hold. This is an inevitable consequence of refactoring the business for market reality.

Disclosure: I am in Las Vegas for SAP TechEd and SAP part funded my trip. SAP is a premier partner.

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